Negotiated Composition: incompatibility with the company's liquidation status

With this judgment, the Court of Appeal of Florence rules on the unfounded nature of the appeal filed by a Company which, following the negative outcome of the Negotiated Composition of the corporate crisis, saw the Judicial Liquidation requested by the Public Prosecutor (PM) and pending before the request for the appointment of an Expert.

The Appellant has based the appeal on two grounds.

In the first, the Company believes that the first judge erred in considering that only the granting of protective measures requested in the Negotiated Composition is suitable to preclude the opening of Judicial Liquidation. In particular, the Company argues that there is no need to request protective measures if there are no creditor actions to inhibit, equating the filing of a request for Judicial Liquidation by the PM to creditor actions. Furthermore, the Company argued that, in the case of a pending request for the opening of Judicial Liquidation and simultaneous opening of the Negotiated Composition of the crisis, Article 7 of CCII applies, where paragraph 2 provides that the alternative procedure to Judicial Liquidation should be pursued.

The Court of Appeal considers the appeal unfounded and therefore not deserving of acceptance. Indeed, the Court observes that: "the negotiated composition is an option that the debtor can use in the case of a crisis in their business or reversible insolvency, and the presentation of the related request does not prevent the filing of a petition for the opening of judicial liquidation, nor does it preclude the continuation of that proceeding, inhibiting only the declaration of the opening of the latter procedure, until the request for negotiated composition is archived."

Furthermore, the Court maintains that, even though the PM is not the holder of a credit to protect, they cannot refrain from requesting the opening of Judicial Liquidation following the notification by the Court (of Arezzo), as they cannot delay this initiative when they have "knowledge of the existence of insolvency," thus promoting the protection of creditors.

The second ground of appeal by the Company concerns the alleged inadequate evaluation carried out by the Court regarding the eligibility criteria of the Negotiated Composition request. In fact, the Company complains that the Court has "conducted its assessments and checks on the financial statements (produced by the company) solely for the stated purpose of determining the existence of insolvency without making assessments regarding the proposed business continuity of the company and the hypothetical possibilities of addressing the creditor positions (through negotiation) contained in the request itself."

The Court also rejects this second appeal and reminds that "a company in liquidation cannot operate continuously, except in order to avoid the damage that a sudden cessation could bring to its value" and in any case, the continuation of the activity is permitted to achieve, in the interest of social creditors and shareholders, the maximum benefit resulting from the liquidation, or the best realization value.

In the present case, therefore, the state of liquidation (for which the Company has not proposed a revocation) does not allow the Company to achieve the goal it had set with the opening of the Negotiated Composition to "preserve business continuity and restructure debt positions."

The Court has pointed out that the Company has been in a state of liquidation since 2021 and that the hypothesis proposed in the plan underlying the Negotiated Composition is based on mainly divestiture activities that have nothing to do with business continuity. Furthermore, from the analysis of the balance sheet, there is a significant debt exposure, such that even considering the assets indicated in the proposed plan, it would not be able to ensure the satisfaction of creditors.

Finally, it is important to establish that the active elements of the corporate assets allow for the equal and integral satisfaction of creditors, taking into account the concreteness and timeliness of these elements, characteristics not found in the analysis of the first judge.

The Court of Appeal, therefore, concludes by rejecting the appeal and placing the litigation costs incurred by the Judicial Liquidation on the Appellant.